As Tariff Talk Heats Up, Get Ready for More Expensive Cars and Trucks

Buckle up, car shoppers. 

Whatever’s next for U.S. trade policy, experts say prices are likely to climb. Car lots are less likely to cut deals or worry about clearing out inventory that may be worth more in a few weeks, according to economists, and vehicles on display today will be more valuable if the U.S. starts imposing tariffs.

Americans are searching for affordable automobiles, and dealers’ current inventory could be the least expensive around for some time, making it highly sought after. Buyers can expect promotions to be pulled back. Dealers, meanwhile, will likely have to pay more to replace the vehicles they sell.

While a fast-moving trade environment means the precise effects are hard to calculate, economists said, the stage is set for car prices to rise—and remain elevated for some time, economists said.

“Nobody is sure what this means for the market right now,” said Cox Automotive Senior Economist Charlie Chesbrough. “But I think we can expect that prices are going to start to rise.”

Monthly Payments Are Already a Hurdle

About 16 million new cars were sold in the U.S. last year, according to Cox. New cars cost an average of roughly $48,000 in February, up about 1% from a year earlier, Cox said, with used car values ticking up slightly during that period.

These prices are already a stretch for many Americans, according to Chesbrough, who said the average monthly payment for new cars grew 26% over the last five years to about $780, while the average monthly bill for used cars rose 30% to roughly $560.

“This is making these monthly payments unaffordable for many,” Chesbrough said on a webinar last week. “That’s the biggest headwind that the vehicle market is facing right now.” In part because of rising prices, the average age of cars on the road has hit 14 years as Americans have been holding on to vehicles for longer, according to Apollo, an asset management firm.

Trump administration trade policy is expected to push prices higher. Tariffs of 25% on aluminum and steel are slated to begin tomorrow, and President Trump has discussed going as high as 50% if the materials are coming from Canada. He has delayed implementing 25% tariffs on other goods from Mexico and Canada currently set to go into effect April 2.

The U.S. imported more than 8 million cars and light trucks in 2024, according to data from the International Trade Administration, with more than half coming from either Mexico or Canada. America produced about 1.75 million cars in 2023, the most recent year data was available from the International Organization of Motor Vehicle Manufacturers.

And cars finished in the states may rely on parts from Canada and Mexico, which have, until recently, been sheltered from tariffs and fees by a trade agreement. Assembling a car in North America could cost $3,500 to $12,200 more, depending on the model, if the US imposes tariffs on goods from Canada and Mexico and those countries retaliate, according to Anderson Economic Group, a research and consulting firm.

For Automakers, Workarounds May Be Limited

Dealerships and manufacturers have been accumulating inventory in the U.S. to get ahead of tariffs, Chesbrough said. But avoiding extra costs is nearly impossible, even when domestic manufacturers source from American companies.

An example: Ford (F) gets the bulk of its steel from the U.S., but its suppliers have international sources, CEO James Farley said at a conference last month, meaning Ford won’t be immune from price hikes—whether driven by tariffs themselves or the possibility of them.

Some assembly could be brought back to the U.S., but the transition could take three years, Bank of America analysts said in a note earlier this month. But in most cases, making auto parts domestically would remain more expensive than importing them, the note said.

After manufacturers and suppliers have made adjustments, U.S. car prices are projected to rise about 6%, according to estimates from The Budget Lab at Yale, which factored in retaliatory tariffs from Canada, Mexico and China.

“Let’s be real honest,” Farley said at the conference, according to a transcript from AlphaSense. “Long term, a 25% tariff across the Mexico and Canadian border would burrow a hole in the U.S. industry that we have never seen.”